Inflation Warning by Bank of England Deputy Governor

Dave Ramsden, Deputy Governor of the Bank of England, recently pointed out that inflation risks in the United Kingdom have become more pronounced over the last few months. According to Ramsden, a key factor driving these increased inflation concerns is the rise in pay growth.
Dave Ramsden further elaborated on the UK’s increasing inflation risks, suggesting that any further interest rate cuts should be approached cautiously and gradually.
Bank of England Policymaker Sounds the Alarm on Rising Inflation
During a speech in South Africa on Friday, the Bank of England’s Deputy Governor reiterated his support for the central bank’s cautious strategy regarding interest rate reductions. He emphasized the heightened economic uncertainty stemming from unexpectedly strong wage growth.
Having joined his #MPC colleagues in cutting interest rates earlier this month, Dave Ramsden is clearly having second thoughts and is now highlighting inflation risks. Expect more of this from other MPC members as UK inflation surges to 4pc and beyond!
— Andrew Sentance (@asentance) February 28, 2025
The Deputy Governor stated that he now perceives a balanced risk – both upside and downside – to the inflation forecast. He also expressed increased uncertainty regarding the UK’s labor market outlook, noting that pay growth has exceeded the Bank of England’s projections.
Ramsden further mentioned that the Bank of England anticipates consumer price inflation to climb to 3.7% later in the year. He indicated that this prediction could influence the bank’s inclination towards further interest rate cuts. It’s worth remembering that the Bank of England had already reduced its rate by a quarter of a percentage point in February, attributing the decision to sluggish economic growth and rising inflation.
Known for his inclination towards lower rates, Ramsden had previously advocated for a quarter-point rate cut during the Monetary Policy Committee meeting in December. However, the majority of the committee decided against further cuts at that time, choosing to maintain interest rates. In the subsequent February meeting, he aligned with the majority to reduce rates to 4.5%.
Recent figures from the Office for National Statistics (ONS) showed that the UK’s inflation rate unexpectedly jumped to 3% in January, exceeding analysts’ forecasts of 2.8%. It’s important to note that the UK’s Consumer Price Index (CPI) had previously fallen to 2.5% in December, with core price growth experiencing a further slowdown.
Looking closer at core inflation, it increased by 3.7% in the twelve months leading up to January, a notable jump from the 3.2% increase the prior month. Grant Fitzner, Chief Economist at the ONS, commented on these figures, stating that inflation had “risen sharply this month to its highest annual rate since March last year.” Fitzner attributed this unexpected rise primarily to airfares, which did not decrease as anticipated, marking the smallest January dip since 2020.
BOE Deputy Governor Expresses Concerns Over Shifting Labor Market
Based on recent economic indicators, Ramsden stated that he no longer believes the risks to sustainably achieving the 2% inflation target in the medium term are solely skewed to the downside. He now views the risks as balanced, acknowledging the potential for both inflationary and disinflationary outcomes.
The Deputy Governor highlighted some worrisome trends in short-term economic indicators, particularly concerning wage growth. He specifically mentioned that annual earnings growth in the private sector for the fourth quarter had accelerated to 6.2%, up from 4.9% in the prior quarter.
Ramsden suggested that wage growth is likely to persist at its current level this quarter, which is a full percentage point higher than previously anticipated for 2024. He further noted that labor demand could potentially weaken in the future, potentially due to a decrease in job vacancies and slower job creation.
Despite these concerns, the policymaker emphasized that his core belief is that the overall trend of disinflation remains in place. However, he acknowledged that the heightened uncertainty and inflation risks stemming from both the short-term economic outlook and global economic developments necessitate a more gradual and careful approach to easing monetary policy restrictions.
Ramsden’s remarks follow recent warnings from Bank of England Governor Andrew Bailey, who cautioned that the UK economy is currently facing headwinds. Bailey also noted that, given the prevailing uncertainty in the global economy, it remains unclear whether inflation will subside in the near term.
The Governor further commented on the negative impact of global fragmentation, particularly attributing it to the policies of the Trump administration in the United States, stating it is detrimental to global economic growth. He highlighted Trump’s announcement of trade tariffs on China, Canada, and Mexico, which triggered a downturn in global markets. Furthermore, the U.S. President has also indicated plans to impose additional tariffs on the European Union in the coming week.